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Here's Why You Should Retain Chemed (CHE) Stock For Now
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Chemed Corporation (CHE - Free Report) has been gaining from strength in the Roto-Rooter segment. Robust demand for plumbing, drain cleaning and excavation and water restoration services buoys optimism. A good solvency position also bodes well. However, tough competition and a decline in VITAS revenues raise apprehension.
Over the past year, the Zacks Rank #3 (Hold) stock has gained 12.2% against a 42.4% decline of the industry and a 13.4% rise of the S&P 500.
The renowned hospice care provider has a market capitalization of $7.25 billion. Chemed’s earnings surpassed estimates in the trailing four quarters, delivering a surprise of 6.6%.
Over the past five years, Chemed’s earnings grew 24.5%, way ahead of the industry and S&P 500’s 12.7% and 2.8% increase, respectively. The company projects 8.3% growth for the next five years compared with the industry and the S&P 500’s projected growth rate of 16.5% and 11.3%, respectively.
Image Source: Zacks Investment Research
Let’s delve deeper.
Factors at Play
Q4 Upsides: Chemed ended the fourth quarter with better-than-expected earnings. The year-over-year growth in revenues and adjusted earnings per share appears promising. Robust performance by the Roto-Rooter segment drove the top line. During the quarter, demand for plumbing, drain cleaning and excavation and water restoration services remained at a record level. Residential services also witnessed incredible growth. Expansion of gross margins buoys optimism. The company’s outlook for 2022, reflecting strong growth over 2021, instills investor confidence.
Roto-Rooter Continues to Expand: Roto-Rooter is currently the nation’s leading provider of plumbing, drain cleaning service and water restoration, providing services to over 90% of the U.S. population. We are upbeat about the segment’s fourth-quarter revenues, which rose 11.8% year over year. Total branch commercial revenues improved 14.8%, whereas total Roto-Rooter branch residential revenues registered growth of 11.2% on a year-over-year basis, respectively. For 2022, the company anticipates Roto-Rooter's revenue growth in the range of 8.0-9.5%.
Strong Solvency: Chemed exited 2021 with cash and cash equivalents of $32.9 million, marking a significant decline from $162.7 million at the end of 2020. Meanwhile, long-term debt at 2021-end was $185 million, much higher than the current cash and cash equivalents level. However, while exiting the fourth quarter, the company did not report any short-term payable debt in its balance sheet, implying that the solvency level of Chemed is pretty promising.
Downsides
Unfavorable VITAS Performance: The VITAS segment registered a 4.8% year-over-year decline in revenues during the fourth quarter of 2021. The segment continued to be challenged by pandemic-related issues, including health care labor shortages, disruption in senior housing and rising inflation. Further, VITAS total admissions fell 9.5% and 7.6% on a year over year and sequential basis, respectively.
Dependence on Government Mandates: Over 95% of VITAS’ revenues consist of payments from the Medicare and Medicaid programs. The segment’s levels of revenues and profitability are subject to the effect of legislative and regulatory changes, including possible reductions in coverage or payment rates or changes in methods of payment, by the Medicare and Medicaid programs.
Tough Competitive Landscape: The market for sewer, drain and pipe cleaning and plumbing repair businesses is highly competitive. In most markets, competition is fragmented, with local and regional firms providing much of the competition. Meanwhile, the VITAS arm competes with a large number of organizations on the basis of its ability to deliver quality, responsive services.
Estimate Trend
Over the past 90 days, the Zacks Consensus Estimate for Chemed’s 2022 earnings has moved 0.8% south to $19.29.
The Zacks Consensus Estimate for the company’s 2022 revenues is pegged at $2.18 billion, suggesting a 2.1% rise from the 2021 reported number.
Key Picks
A few better-ranked stocks in the broader medical space are Henry Schein, Inc. (HSIC - Free Report) , Owens & Minor, Inc. (OMI - Free Report) and AmerisourceBergen Corporation .
Henry Schein has an estimated long-term growth rate of 11.8%. Henry Schein’s earnings surpassed estimates in the trailing four quarters, the average surprise being 25.5%. It carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Henry Schein has outperformed the industry over the past year. HSIC has gained 34.1% compared with the industry’s 12.2% rise over the past year.
Owens & Minor has a long-term earnings growth rate of 23.6%. Owens & Minor’s earnings surpassed estimates in the trailing four quarters, delivering a surprise of 29.5%, on average. It carries a Zacks Rank #2 (Buy).
Owens & Minor has outperformed the industry over the past year. OMI has gained 23.3% against a 12.7% industry decline in the said period.
AmerisourceBergen has a long-term earnings growth rate of 8.2%. In the trailing four quarters, AmerisourceBergen’s earnings surpassed estimates in three and missed in one, delivering an average surprise of 2.3%. The stock currently sports a Zacks Rank #2.
AmerisourceBergen has outperformed its industry in the past year, gaining 34.7% versus the industry’s 12.2% rise.
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Here's Why You Should Retain Chemed (CHE) Stock For Now
Chemed Corporation (CHE - Free Report) has been gaining from strength in the Roto-Rooter segment. Robust demand for plumbing, drain cleaning and excavation and water restoration services buoys optimism. A good solvency position also bodes well. However, tough competition and a decline in VITAS revenues raise apprehension.
Over the past year, the Zacks Rank #3 (Hold) stock has gained 12.2% against a 42.4% decline of the industry and a 13.4% rise of the S&P 500.
The renowned hospice care provider has a market capitalization of $7.25 billion. Chemed’s earnings surpassed estimates in the trailing four quarters, delivering a surprise of 6.6%.
Over the past five years, Chemed’s earnings grew 24.5%, way ahead of the industry and S&P 500’s 12.7% and 2.8% increase, respectively. The company projects 8.3% growth for the next five years compared with the industry and the S&P 500’s projected growth rate of 16.5% and 11.3%, respectively.
Image Source: Zacks Investment Research
Let’s delve deeper.
Factors at Play
Q4 Upsides: Chemed ended the fourth quarter with better-than-expected earnings. The year-over-year growth in revenues and adjusted earnings per share appears promising. Robust performance by the Roto-Rooter segment drove the top line. During the quarter, demand for plumbing, drain cleaning and excavation and water restoration services remained at a record level. Residential services also witnessed incredible growth. Expansion of gross margins buoys optimism. The company’s outlook for 2022, reflecting strong growth over 2021, instills investor confidence.
Roto-Rooter Continues to Expand: Roto-Rooter is currently the nation’s leading provider of plumbing, drain cleaning service and water restoration, providing services to over 90% of the U.S. population. We are upbeat about the segment’s fourth-quarter revenues, which rose 11.8% year over year. Total branch commercial revenues improved 14.8%, whereas total Roto-Rooter branch residential revenues registered growth of 11.2% on a year-over-year basis, respectively. For 2022, the company anticipates Roto-Rooter's revenue growth in the range of 8.0-9.5%.
Strong Solvency: Chemed exited 2021 with cash and cash equivalents of $32.9 million, marking a significant decline from $162.7 million at the end of 2020. Meanwhile, long-term debt at 2021-end was $185 million, much higher than the current cash and cash equivalents level. However, while exiting the fourth quarter, the company did not report any short-term payable debt in its balance sheet, implying that the solvency level of Chemed is pretty promising.
Downsides
Unfavorable VITAS Performance: The VITAS segment registered a 4.8% year-over-year decline in revenues during the fourth quarter of 2021. The segment continued to be challenged by pandemic-related issues, including health care labor shortages, disruption in senior housing and rising inflation. Further, VITAS total admissions fell 9.5% and 7.6% on a year over year and sequential basis, respectively.
Dependence on Government Mandates: Over 95% of VITAS’ revenues consist of payments from the Medicare and Medicaid programs. The segment’s levels of revenues and profitability are subject to the effect of legislative and regulatory changes, including possible reductions in coverage or payment rates or changes in methods of payment, by the Medicare and Medicaid programs.
Tough Competitive Landscape: The market for sewer, drain and pipe cleaning and plumbing repair businesses is highly competitive. In most markets, competition is fragmented, with local and regional firms providing much of the competition. Meanwhile, the VITAS arm competes with a large number of organizations on the basis of its ability to deliver quality, responsive services.
Estimate Trend
Over the past 90 days, the Zacks Consensus Estimate for Chemed’s 2022 earnings has moved 0.8% south to $19.29.
The Zacks Consensus Estimate for the company’s 2022 revenues is pegged at $2.18 billion, suggesting a 2.1% rise from the 2021 reported number.
Key Picks
A few better-ranked stocks in the broader medical space are Henry Schein, Inc. (HSIC - Free Report) , Owens & Minor, Inc. (OMI - Free Report) and AmerisourceBergen Corporation .
Henry Schein has an estimated long-term growth rate of 11.8%. Henry Schein’s earnings surpassed estimates in the trailing four quarters, the average surprise being 25.5%. It carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Henry Schein has outperformed the industry over the past year. HSIC has gained 34.1% compared with the industry’s 12.2% rise over the past year.
Owens & Minor has a long-term earnings growth rate of 23.6%. Owens & Minor’s earnings surpassed estimates in the trailing four quarters, delivering a surprise of 29.5%, on average. It carries a Zacks Rank #2 (Buy).
Owens & Minor has outperformed the industry over the past year. OMI has gained 23.3% against a 12.7% industry decline in the said period.
AmerisourceBergen has a long-term earnings growth rate of 8.2%. In the trailing four quarters, AmerisourceBergen’s earnings surpassed estimates in three and missed in one, delivering an average surprise of 2.3%. The stock currently sports a Zacks Rank #2.
AmerisourceBergen has outperformed its industry in the past year, gaining 34.7% versus the industry’s 12.2% rise.